January 19, 2011

Doc Fix Zombies Attack

At National Review, James Capretta and Yuval Levin continue to defend Republican hokum about the doc fix. When pressed by critics, they concede the basic details of the story -- the issue is a poorly-written 1997 law that accidentally slashed doctor pay, which Congress has been correcting ever since, and is not affected by the Affordable Care Act. Yet they continue to try to argue that the cost of fixing this is really a hidden cost of the Affordable Care Act. Why? Here's Capretta:

If Krugman’s analysis were accurate, why does Congress go through the annual agony of a “doc fix” at all? Why haven’t they just passed a permanent solution already and gotten it over with?

The answer is that, while Congress doesn’t want to cut physician fees, it hasn’t wanted to pile the costs onto the national debt either. What has held back a permanent solution is the inability to find $200–$300 billion in acceptable “offsets” to make sure a permanent fix doesn’t add to the deficit.

When President Obama assumed office, he wanted his health bill and a permanent “doc fix” too, but he didn’t have enough flimsy offsets to grease the way for them both. So he came up with a new “solution”: use the offsets to pave the way for Obamacare’s spending, and exempt the “doc fix” from the need for offsets at all. This would create the perception of “deficit reduction” from Obamacare even as an unfinanced “doc fix” ran up the deficit by an even larger amount.

At the end of the day, even some Senate Democrats balked at this shameless sleight of hand and blocked the effort to pass an unfinanced and permanent “doc fix.” But the issue remains very much unresolved, and the administration has yet to disavow their push from last year to pay higher physician fees with borrowed money.

and here's Levin:

Chait suggests here that the cost of the doc fix is just assumed to be incurred each year—that it’s basically part of the baseline. But if that were the case, why would Congress go through the painful process of passing it each year? They do it because the smaller annual doc fixes (which are not part of the baseline) are easier to offset with other spending cuts while a single permanent fix—which would add several hundred billion dollars to the national debt—would be more difficult to offset. Doctors’ groups don’t like the uncertainty of the annual fixes, and so when they were asked to support the Democrats’ health-care bill, they pressed for a permanent fix, despite the cost. In their first draft of the health-care bill, in July of 2009, House Democrats sought to include such a permanent fix in the bill itself, and believed that the tax increases in the bill and their various efforts to game the CBO process with promises of future cuts would be enough to offset the required cost. They were not. The CBO reported that, even with all the various taxes and gimmicks it contained, the draft of the bill that contained the permanent doc fix would increase the deficit by $239 billion over the subsequent decade. The agency also reported that the doc-fix component of that bill accounted for $228 billion of that amount. The solution was obvious. The permanent doc fix was removed from the bill, and the Democrats promised the doctor groups that they would pursue it in a separate measure—a measure that would enact a permanent doc fix without offsets, and so would add about $200 billion to the deficit. They tried to do that after passing the health-care bill (which is why Republicans at the time pressed this point, to make clear that they would consider the cost of such a fix part of the cost of the health-care overhaul), but as it turned out they could not even get enough Democratic votes in the Senate to pass such a measure.

The argument here is highly convoluted, but the issue is simple. First of all, the doc fix isn't really a new cost at all. The savings created in 1997 were unintended, and stopping them from going into effect isn't really a new cost, it's just the on-paper price of keeping current policy constant.

Second, Capretta and Levin are trying to construct a metaphysical distinction between an annual doc fix and a permanent doc fix. The practice ever since 1997 has been to have Congress cancel out the huge cut in physician reimbursement a year at a time. Obviously, doctors have been annoyed about having to go through this ritual every year. Democrats considered doing a decade's worth all at once. The downside, of course, is that they would have to come up with a decade's worth of savings all at once to offset this "cost." So they didn't. Instead they're reverting to the old practice of filling in the doc fix every year.

Capretta and Levin are trying to argue that, once Democrats considered doing a long-term doc fix, the issue somehow became part of the Affordable Care Act. Even though they decided to separate the two out, the cost of doing the same thing Congress has been doing since 1997 is now really a hidden cost of Obama's 2010 health care reform. That's really what they're arguing. By this logic, if Congress had ever considered adding funding for the Afghanistan war into the health care bill, then the Afghanistan War would also be a "hidden cost" of the Affordable Care Act. It's such obvious nonsense that anybody who repeats it has forfeited his claim to be taken seriously.

Levin, in his post, continues to argue that CBO and CMS find that the Affordable Care Act bends the health care cost curve up. He continues to conflate the difference between the level of health care spending and the rate of growth. The bill increases spending in the short term by adding 30 million Americans onto the insurance rolls. (This is largely, but not completely, offset by other cuts ion health care spending.) The rate of growth from then on is lower than under the status quo. The rest of Levin's argument on this point -- go read it, it's long -- is a continued attempt to conflate level of spending with rate of growth.

As I said, he's free to disagree with those findings -- they are only projections, and they could be wrong in either direction. But to say that they show the Affordable Care Act bends the cost curve upward is simply false.